With the stroke of a pen, New Jersey Governor Phil Murphy has unplugged the state's pro-electric-vehicle position, signing into law a new EV road tax that is the highest of its kind in the nation.
Starting in July, New Jersey EV owners must pay an annual $250 road tax fee in an effort to offset the state's loss in fuel tax revenue. The new fee will increase by $10 each of the next four years until it reaches $290 in 2028. To make matters worse, New Jersey requires buyers and leases of all new vehicles to pay four years of registration fees upfront and the new EV fee will be included in that initial payment.
Therefore, beginning in July, any new electric vehicle purchased or leased in New Jersey will cost $1,060 more than it does today. That's considerably damaging since the higher initial cost of an electric vehicle is one of the biggest impediments to EV adoption.
As a lifelong resident of New Jersey as well as a long-time EV owner, it pains me to see the state initiate what I consider an unreasonable tax on clean-energy vehicles so prematurely.
I say prematurely because I have always maintained that electric vehicles should pay their fair share of road taxes, which help fund the state's infrastructure repair and development. However, I believe that should only start once electric vehicles have reached a point of being 5% of the total light vehicle fleet in the state. Estimates have that figure currently at about 1.8%.
Additionally, once such a fee was imposed, I would support the amount to be similar to what the average combustion vehicle in its class pays per year through the state's gasoline tax. Murphy's current law will have many EV owners paying twice as much as the owners of a comparable combustion vehicle pay in the gasoline tax.
And the pain doesn't stop there. Since 2004, battery electric vehicles (BEVs) have enjoyed a sales tax exemption in New Jersey, and that luxury will now begin a three-year phase-out period. The sales tax exemption has been an enormous incentive to Garden State residents wanting to ditch the pump, helping to close the gap between the cost of a comparable combustion vehicle and the more expensive EV.
I understand the sales tax exemption wouldn't—or shouldn't go on forever. I figured that by the end of this decade EVs would have near cost-parity with combustion vehicles and the incentives wouldn't be needed anymore. However, today, and for the next few years, the incentives are still important in helping many that want an EV, afford it. The fact that the sales tax announcement was made at the same time the new EV road tax was signed into law made the news for New Jerseyians even harder to swallow.
I would also be remiss if I didn't mention the state's ChargeUp EV incentive program, which offers up to a $4,000 point of sale incentive on electric vehicles. Signed into law in 2020, ChargeUp is funded by the Board of Public Utilities which has $30 million set aside every year for 10 years to pay for the rebates. Each year since its inception, the fund runs out well before the year does, and the program gets suspended until the following year's funding is in place.
While the program's intentions were great, the way it has been administered has made it very difficult for dealers and EV buyers, because there are many months of the year when there is no rebate and no clear date when the program will receive its next traunch of funding.
I think that what's disappointed me most is that with the recent changes the state is going from one of the best states to buy an EV, to one where, over time, it will cost more to own one.
I'm certainly not the only person who shares these opinions. I reached out to Pam Frank, the CEO of ChargEVC, a non-profit coalition that promotes the sustainable growth of the electric vehicle market in New Jersey for her thoughts on the recent developments.
Frank sent me a copy of a letter the organization sent to members of the New Jersey Senate Budget and Appropriations Committee a few weeks ago along with a request to amend the new EV tax, and hopefully lower the annual fee to something more reasonable.
Below is an excerpt from the letter:
There are three main reasons supporting this position: First and foremost, it is imperative that we keep our eye on the ball. New Jersey has set aggressive statewide clean energy and EV adoption goals to combat the emissions that harm our environment and harm people’s health. The Murphy Administration and the New Jersey Legislature have prioritized efforts to reduce greenhouse gas emissions and fight climate change.
This has included implementing a range of incentives to support the purchase of EVs and the charging infrastructure necessary to charge these vehicles. Imposing an EV fee of $250 would negate the impact of these rebates and tax credits. It would also slow progress towards achieving our statewide goals. In fact, a 2020 nationwide survey of current EV owners by UC Davis concluded that a $100 annual registration fee on EVs would reduce sales by over 10%.
At $250, New Jersey would have the highest, most punitive EV fee in the country. We must ensure that New Jersey remains a national leader in the fight against climate change.
Second, economics does not support the imposition of a $250 fee, which would be punitive on EVs. For comparison, we calculated the level of annual payment made by the average driver under the TTF per gallon tax. An average Prius Prime currently pays $97 a year in gas tax. An average Honda CRV (the highest selling car on the road in New Jersey) currently pays $127 in gas tax. An EV is far more efficient than both of those vehicles, bringing significant environmental benefits to the entire state. Yet, under this proposal, the EV fee would be double those gas tax payments made by less efficient cars. EV drivers should be rewarded—not punished—for driving the cleanest vehicles on the road. A fair EV fee should be lower than that paid by similarly sized gas-powered vehicle, and not charged like they are gas-guzzlers.
In addition, it is also important to note that EVs already pay sales tax when charging at public fast chargers since electricity has New Jersey’s sales and use tax imposed on it, while gasoline does not. These taxes and surcharges come out to about $70 a year imposed on EV drivers. The proposed EV fee does not take into account this tax that EV drivers already pay.
Finally, it is important to address a common false narrative about EVs. There is a mistaken argument that because EVs are heavier than gas-powered vehicles of the same size, they cause more road damage—and should therefore be charged a higher fee.
EVs are in fact heavier than gas-powered vehicles, but the damage caused on roads is overwhelmingly caused by medium- and heavy-duty vehicles. Our review of studies has found that the real road damage is not caused by passenger vehicles and that damage kicks in at above 26,000 pounds. For comparison, one of the largest and heaviest passenger EVs, a GMC Hummer EV, weighs 9,000 pounds, while the popular Tesla Model Y weighs under 5,000 pounds. So, EVs are not the cause of this damage to roads any more than gas-fueled passenger vehicles. The damage caused by any passenger vehicle—electric or gas-powered—is negligible. The fact that EVs are heavier than gas-fueled passenger vehicles does not lead to more road damage, and EV drivers should not be required to pay for damages that they are not causing.
ChargEVC strongly recommends that you amend S2931 to reduce the EV fee to $75 in support of New Jersey’s progress toward more EVs on the road and cleaner air. Please feel free to reach out with any questions on this matter.
My take
As mentioned above, I fully support EV drivers in New Jersey paying their fair share of road taxes, but the operative word is fair. I'll go a little higher than ChargeEV's recommendation and propose a $100 annual fee, which increases to $125 when EVs account for 10% of light-duty vehicles on state roads and $150 when they achieve 25%. Once EV adoption exceeds 50% then increase it to $200/year, as the gas tax would have likely increased by then also.
However, at this time, when the state claims to be pro-EV and wants to ban the sale of new combustion vehicles past 2035, this new road tax is unfair, and as the ChargeEV puts it, punitive. It will work against the state's 2035 goal and will certainly cause many New Jersey residents who are currently considering an EV, to instead buy another combustion vehicle.
If New Jersey is serious about a 2035 ban on new combustion vehicles, it should work with automakers and dealerships to achieve that goal, not sabotage it as the new law will unfortunately do.
The topic of incentives and EV fees always brings out a lively discussion in the comment section. Let us know your thoughts below.
